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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Trade profits: scope

SS5, 6, 7(5) Income (Trading and Other Income) Act 2005; SS5, 19, 35 Corporation Tax Act 2009

Income Tax

The profits of a trade arising to a UK resident are chargeable to tax wherever the trade is carried on.

The profits of a trade arising to a non-UK resident are chargeable to tax only if they arise either:

(a) from a trade carried on wholly in the UK; or

(b) where a trade is carried on only partly in the UK, from the part carried on in the UK.

In other words, the profits derived by the non-resident from trading outside the UK are not chargeable.

If a resident of the UK carries on a trade wholly abroad the profits are treated as relevant foreign income. This enables the taxpayer to claim some additional deductions in computing the profits and in some cases to claim to have the profits charged on the remittance basis. For the remittance basis see RDRM31000 onwards. For the deductions see BIM47712.

The treatment of profits from trading within the UK by non-residents is dealt with in more detail in INTM260000 onwards.

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Corporation Tax

The statute imposing the charge to Corporation Tax on the profits of a trade does not include any territorial restrictions. The general Corporation Tax provisions restricting the scope of the tax therefore apply.

A UK resident company is chargeable to Corporation Tax on all its profits wherever arising. There is however an exemption from the charge for profits of foreign permanent establishments which applies by election. See INTM280000 onwards.

A non-UK resident company is chargeable to Corporation Tax only if it carries on a trade in the UK through a permanent establishment in the UK. The chargeable profits of such a company include trading income arising directly or indirectly through or from the permanent establishment. See further INTM262040.